Qorvo, Inc. (QRVO) Earnings Call Transcript & Summary

I wanted to bring Phil in to the discussion. Philip, if you could give us an overview of the High Performance Analog business group? I believe, is what roughly 20% of revenue. Maybe sort of deconstruct what's within that?

Absolutely. So I'll start with the largest business in HPA, which is our defense and aerospace business. This is a market where we have a strong brand name. We've been in this business for a long period of time. And I think what's exciting about the DNA space is there's really 3 growth drivers that -- I don't know if it get a lot of attention in the industry of what's really driving the growth in that space. The first is what you see similar like an automotive, the electrification trend. You're seeing that same trend in the defense space. Existing systems getting upgraded. There are just a lot more semiconductor content being put into these assets. The second is the trend that I call the one to many, right? You're going from one satellite to many satellites. You're going from 1 aircraft to many drones, right? And that is driving not just content gains, but that's also driving higher volume, if you will, for that business. Now, the challenge, and then the opportunity for kind of the third growth driver for the DNA space is really around how do you put all of the stuff into a smaller area, right? And that's where our investment in our ship program that we have, where we do advanced packaging for the U.S. government onshore in Texas is such a real valuable asset for us, and we see as a real exciting growth opportunity. And I do want to highlight one thing. A lot of that advanced packaging technology that we have with our ship program, leverages the technology that we had in our Advanced Cellular group, right? So there's this natural capability set that we're able to kind of extend to the U.S. government that they value in a meaningful way. So that's the first business. The second business is what we call the infrastructure business. There are 2 business groups, if you will, market segments to that. The first is our base station investment. And the second is what we call broadband or cable access business that we have there. Maybe some color around our base station investment and what we're doing there and why we're excited about it. So obviously, there's a lot of press in terms of the 5G deployments. And we still see a lot of opportunity for growth in the U.S. and the Europe markets in particular. But India, in particular, is moving at a pretty fast speed. I think the model that they're trying to deploy is similar to how China rolled out the 5G spectrum and their base stations that they built out. So, we see a real opportunity for our small signal business, both in the 32TR and the 64TR markets, but also in our GaN PA technology that we have. And that's an area that we see a lot of growth opportunity for us. Not just in the PA, but we also have a technology called PAMS, where we take the technology of -- the module technology in our mobile business, and we move it over and we start doing the same thing we integrate, right? And we have a lot of excitement around that. And so, we see a growth vector from that. Our broadband cable access business doesn't get a lot of press, but it's actually a real nice business that we see will continue to grow for the foreseeable future. Obviously, the cable business is finding fiber and they're finding fixed wireless access and all these other things. And so, they're constantly trying to come out with new standards that kind of maximize the bandwidth of the existing pipe that they have, the cable. So, you see DOCSIS 3.1 today, moving to DOCSIS 4.0. We have solutions that we've just announced on the DOCSIS 4.0 side. So, we see that as a solid business as well. And then last, I'll just kind of lump 2 business units into 1. We call it our power management business. And that consists of our, what we call high power, which is our silicon carbide investment that we have with the United Silicon Carbide acquisition that was done a little over a year ago. And we're really excited about that piece of the business. Obviously, silicon carbide gets a lot of press and a lot of coverage. And Qorvo probably today isn't one of the top names that comes to mind when they're talking about that technology. But for us, we see power management, not RF power, but DC-to-DC and AC-to-DC power as a natural extension, especially as compound semi technologies like silicon carbide and GaN are used more and more in that area. And our silicon carbide technology that we have, why we're so excited about it is, today, we actually have industry-leading RDS(on) performance, okay? RDS(on) is the metric that everyone cares about. It's what drives battery life, right, or more miles you can drive on the charts. It's what drives how fast you charge a car, how much power you use in a data center. And our JFET architecture that we have in silicon carbide is unique. We actually can get 2x the number of die for a given RDS(on) and voltage level than you can out of a MOSFET, out of a [ PMIC ] solution. So, this drumbeat of, you got to get to 8-inch, you got to do all these different things, we don't necessarily have that drumbeat necessarily. And we can leverage what we see as a lot of the supply base out there, like the announcement that we made with SK Siltron, and there's others that are in the works, so where we get this really nice capability without a huge CapEx then. And then last but not least, we have our -- what I call our low power business, which is our traditional PMIC, and we have a motor control capability. Qorvo is not known as a power management company, obviously. You think of the TIs and you think of maybe the ADIs, the power integration companies like that. I've been in the power business for -- I don't -- like Bob, I don't really want to say how many years I've been doing this. What we have is actually a really solid set of intellectual property and capability. And our plan with that business is kind of what the mobile or the Advanced Cellular group did as they moved into envelope tracking and average power track. We're going to leverage that into the markets that we're strong in today, whether that's defense, whether that's mobile, whether that's some of our consumer IoT businesses. And so we're really excited about that. We think we have a strong capability, and we see that as not only a diversification but also a growth [ trajectory ].

I appreciate that overview, Philip. And I just want to give a plug here for one second. We just started publishing our compound semiconductor quarterly research piece, and we can verify your strong competitive position in things like GaN, RF and your beachhead in silicon carbide, and the power management area as well. But I wanted to go back to your overview and sort of deconstruct your long-term view on the growth rate of the business, which I believe you guys peg it roughly a double-digit percent. What are the bigger contributors to that double-digit percent growth rate?

So I think our fastest growing business will be the power management business, just given the opportunities that we see there, our design-in-funnel, which is pretty significant. I think after that, I would move it over to really a tie between our DNA and our base station business. Again, DNA, people think that they look at the budget right from the U.S. government, 2% growth. They don't see it as fast growing. But as you filter it down to kind of the trends that I talked about, we see that as a solid double-digit growing business for us, and we see that continuing in the future. I think our broadband business will probably be the slowest growing, single-digit kind of growth, but growth nonetheless. So that's kind of the way to think of the different pieces of the business.

And if I'm not mistaken, most of your M&A activity is focused in your group, correct? And so, to what extent does inorganic growth play into that?

Actually, just to make a comment there, give you a chance to catch your breath. You've done very well. The acquisitions that we've made have been actually in all 3 groups. The Connectivity and Sensors group is primarily acquisitions, mostly except for the WiFi part. And the other one that we had is the Cavendish Kinetics, which is the RF MEMS for switches that actually is in the Advanced Cellular. But the others -- yes, Philip has done a good job on those as well.

And the programmable power management solution that you have, what is the key differentiator that you anticipate giving you a stronger market position from a relatively low starting point?

So, what the technology brings is, what I would call fast time to market. So, envision you're at a company and you have a new board with a new digital ASIC or digital processor that comes out. And I can tell you from way too many years of experience, the bringing up of that system from a power management perspective, the only guarantee is there's changes. You're going to have to do something, you're going to have to change a rail, you're going to have to change the timing on one of your -- how you bring up one of the different voltages. What we offer is an ability for our customers to get those changes done in the fastest possible way. And that is truly valuable, right? Time is money. And we see that benefit, in particular, in some of the markets that we're in today with our PMIC technology. We also have another technology in motor control. And really, that's an efficiency story. We have a capability where, between some of the algorithms and some of the digital control aspects that we have with that technology, we lead in efficiency. And obviously, in any kind of battery power tool market, things like that, efficiency is battery life, right? And so, the customers really value that.

And with respect to your RF GaN business, there's kind of a changing competitive landscape with a few companies who are here. Notably NXP has been investing in their capacity. Sumitomo, I guess, is the juggernaut in the industry. And we have Wolfspeed which has deferred its transition to 150 millimeters, which presumably will put them at a competitive disadvantage. So, how do you see that changing landscape benefiting you organically or inorganically?

I think organically, we have today a factory footprint that can support kind of 2 markets, which I think our customers value, right? We can do our defense GaN, we can do our nondefense GaN in the same factory. What we have found is that -- what our customers truly appreciate. Because what's happening is it's not just about the GaN technology, it's about how do you integrate it, right? It's that integration story that I talked about. And our ability to do that, I think, is what will continue to set us apart. And a lot of that is this leveraging the scale that we have with our Advanced Cellular group. I can tell you -- I just got back from visiting multiple customers and I hear that drumbeat from our customers all the time. You guys bring scale that we need in this business. And so, I think those 2 things is really what's going to keep us in the forefront going forward. Well, that's true. And then the filter technology as well. I mean, good point, Bob. We have both in our defense segment as well as in some work that we're doing in our base station market. Our filter capability will also really differentiate us. Because again, remember, as you start integrating into modules, it's not just the PA, it's power management, by the way, which we're leveraging some of the technology that we have in our power business. It's filter technology. All of these things kind of come together. And there are very few competitors out there that have all those pieces together. I think that's what's going to keep us in the forefront.

I wanted to ask you about your manufacturing footprint in High Performance Analog group. To what extent is -- I would imagine anything exotic like wideband gap semiconductor materials is internally sourced, maybe with the exception of your Silicon Carbide UnitedSiC business. And so, to what extent is this -- your supply chain supported by internal resources versus external? And how do you see that changing maybe over time?

The easiest way to think about it, I think, is power external, everything else internal, would be the way to kind of view that. As I look going forward, I don't see that fundamentally changing, to be honest with you. I think one of the things we'll have to look at is our silicon carbide investment in terms of -- today, it's all external, right? And is there some options there, we don't know. Right now, we're committed to kind of the foundry model. But outside of that, I don't see that split necessarily changing.

And I wanted to wrap up our time with maybe a little bit of a controversial topic as it relates to capital allocation. I know you guys have been aggressively buying back your stock. It makes sense. Your stock is depressed. It's trading low valuation multiple, and you obviously feel it's a good buy. But to what extent do you think you can enhance shareholder value by maybe favoring capital allocation and skewing it more towards any activity for the sake of diversification? Do you think that would lead to a higher valuation multiple for your equity if you were able to diversify away from the mobile handset market or away from a particularly large customer?

Glad you waited till the end so I could think about it. Number one, let's just step back in time. We have been aggressively buying stock since we formed the company. Actually, since we formed the company, we've actually bought over $5 billion worth of our stock. So we've reduced our share count from over 155 million to around 100 million. So, we've done that in the past. Our Board was kind enough to authorize a $2 billion repurchase that we announced in our last call. So, lease signaling, we will continue to be buyers of our stock. Also I want to point out that, since we formed the company, we spent over $1.8 billion in acquisitions and about all of those have been to diversify our business. And then, if you look at with -- how we've reorganized the company into 3 segments, the 2 segments are now being led by 2 very capable leaders to -- and we put them in growth businesses that will grow much faster than the handset or the Advanced Cellular business that we said was at mid to high single digits. And these businesses that fill up and Eric run, we expect to be running strong double-digit growth. So over time, the Advanced Cellular will become a lower and lower percentage of the business while growing. So what we always say, when we look at acquisitions, are there candidates out there that we are a better owner, where we can take one and scale it, or in other cases, significantly reduce their costs to be able to drive it forward? So, if I look at silicon carbide -- United Silicon Carbide acquisition, what they needed was someone who could bring that scale and balance sheet to be able to make investments and drive the growth and keep up with that business. So, that's a great example. We were able to do that. The Active-Semi was just getting them access to the worldwide sales force that we had. Great engineering team, great technology as Philip highlighted. So, I'll use that as an example. And then another one that we acquired, which is really in its infancy is the MEMS sensor business that we have. Now that's really interesting to me because it's in automotive already. It's in touchpads. We talked about that. So, I see that business growing nicely. And then the ultra-wideband, we're in the Google Pixel. So, we're already in the Android ecosystem, and we continue to get that out. We're now in a key [ fob ], so that will drive. So, I feel good about the acquisitions we've made. But in areas where we feel we're a better owner, we'll continue to make acquisitions.

Great. I think we're out of time. I have a lot more questions I'd like to ask, but for the sake of time I'm going to wrap it up. And so with that, I wanted to thank Bob and Philip for the time spend here today. Thank you, guys.

Thank you, Gary. Appreciate it.